Q3 2020 Brixmor Property Group Inc Earnings Call

And then of course, our continued delivery of value accretive reinvestment.

In many ways the disruption caused by the pandemic has accelerated our path to delivering value and growth from our portfolio. That's consistent with our purpose as a company of being the center of the communities. We serve let's dig into the results currently over 97% of our tenants are now open and operating and importantly.

Traffic levels over the last several weeks have been trending around 92% of prior year levels, which we believe is at the top of the peer group for which we track such data.

Our cash collections continue to improve and are tracking just behind tenant reopenings with our third quarter past cash collections at 88.2% versus 84.5% for the six months ended at 930, when you factor in deferral agreement. We now have nearly 93% of our total JV are for the third quarter.

Peter addressed that momentum continued through October where nearly 90% of our hbr cash collected in another 2.4% was addressed through deferral agreements as you might expect the remaining 7% of Hbr for the third quarter that has not been addressed is heavily concentrated in the categories of entertained.

Small format fitness and full service sit down restaurants.

Drawing on our experience with other natural disasters, our priority with these tenants most of whom are small business owners has been to focus on getting them reopened and operating first and then prioritizing deferral requests and payment plans, we expect to work towards resolution with these tenants over the next few months.

As we continue to drive cash collections, you've also seen our bad debt reserves correspondingly decline Angela will cover those reserves in a minute, but we believe that we have been appropriately conservative in our Collectability analysis further I believe that our disclosure on reserves taken is among the most transparent.

Importantly, our new leasing production continues to accelerate with compelling tenants in core categories like specialty groceries quick service restaurants value apparel and general merchandise, we assign nearly 700000 square feet of new leases this quarter at an average cash spread of 14% this new.

Lease spread would have been 20% if we adjust for the single backfill of a bankrupt tenant with a specialty grocer from whom we expect to add significant vibrancy to the center impacted.

And importantly, our net effective rents this quarter were extremely strong even when skewed towards anchor deals coming close to an all time high for us demonstrating both the demand to be in our centers and our disciplined with capital looking forward, we expect our new leasing spreads to continue in the mid to upper teens based on our new lease.

Sing pipeline.

Our total leasing pipeline stands at over 2.1 million square feet and $36 million in Aby arm I would further note that our continued acceleration and leasing has resulted in just under $40 million of signed but not commenced KBR that is expected to deliver over the next several quarters. When you consider both the.

Forward pipeline and that signed but not commenced leases that $76 million of FBR, which will be an important tailwind going forward in driving our outperformance.

New leasing production also continues to drive our forward reinvestment pipeline, which currently stands at $373 million and an incremental return of 10%.

And importantly, we continue to deliver our projects even in today's environment with $51 million of projects delivered this quarter at an incremental return of 9% as I've mentioned many times before we are generating tremendous value even in a rising cap rate environment, given not only the incremental returns, but also the improve.

Movement in the cap rates that would be applied to the centers impacted.

I'd like to thank Citigroup for hosting their live from New York's areas that our redevelopment project in Mamaroneck, New York, where we replaced the vacant MP box with a phenomenal specialty grocer, a pharmacy and a great lineup of small shop tenants in short, we put almost $13 million to work in an incremental return of 10% nearly.

Doubling the value of our investment and importantly, and again delivering on our purpose of owning centers that are the center of the community. They serve in fact since we began over four years ago. We've completed 120 reinvestment projects across the portfolio representing over $450 million of investment at an average Inc.

Her mental return of 10% projects like the Niva village seminal Plaza Rose Pavilion, the village at Mira Mesa Hearthstone Corners Gateway Plaza Marlton crossing Preston Ridge, Roosevelt and park Shore Plaza, among many others. Please check them out on our property tour portal on our website. It's just.

Simply phenomenal value creation, and again strong evidence of our disciplined approach with capital.

In short this pandemic has revealed the true strength of our business plan and has accelerated the opportunities we have to create additional value.

Looking ahead, we do expect elevated levels of tenant failures as the impact of the pandemic continued to be felt disproportionately in certain categories.

Every retail landlord will be facing this challenge however, thats why platform and rent basis are so critical if you expect to be in the physician, a truly creating value versus treading water or losing VI bricks more has and well continue to deliver real value through this crisis and beyond.

Given our progress we are pleased to reinstate our dividend at a rate of 21 and a half cents per share payable in January of next year. We believe this initial level to be conservative, but also reflecting our confidence in our forward plan, while allowing for retained capital to be reinvested in our accretive reinvestment pipeline.

Importantly, we believe it is that a level they can grow even in an environment of continued disruption.

And as Angela will cover in a minute. We are currently generating ample free cash flow and enjoy almost $1.9 billion of liquidity and cash and available line of credit.

Ensuring that we can continue to XR execute our plan for the next several years without having to access the capital markets.

Allow me to conclude my remarks by thanking the Brixmor team for your continued focus and execution through this crisis. Your commitment inspires me and embodies our first cultural tenant that great real estate matters, but great people matter, even more thank you Angela.

Thanks, Jim and good morning, Jim highlighted our results for the third quarter continued to demonstrate the strength and resiliency of our portfolio with improving rent collection trends and strong new leasing activity.

Before walking through our third quarter results I'd like to highlight our COVID-19 based rent disclosures on pages 11, and 12 of our supplemental financial package, which provides detailed transparency related to the impact COVID-19 has had on our income statement in both the second and third quarters of this year we.

We appreciate that there is significant diversity and practice quarter related to revenue recognition for lease modification.

Great.

We hope that that disclosure provides clarity on our practices Alex.

To summarize some key highlights from that disclosure third quarter built base rent was $211 million, which are down less than 1% from pre pandemic level.

Cash collections related to Q3 don't base rent totaled $184 million or another $9 million with the direct through executed to Berlin abatement agreement, resulting in $18 million of accrued third quarter base rent that was uncollected and on a draft as of September 30.

In addition, the amount of accrued the uncollected unaddressed base rent related to the second quarter decreased from $43 million reported in our last supplemental to $21 million as of September 30, as a result of additional cash collection and different abatement agreements executed for Q2 announced during the third quarter.

Revenue came down collectible totaled $21 million in the third quarter notable decrease relative to the $28 million recognized in the second quarter.

Not recognizing Q3 was comprised of $15 million related to third quarter built base rent.

$2 million related to second quarter based rent on a net eight.

And $4 million related to recovery income and prior period balances on a net basis.

In addition, during the third quarter, we reversed a $11 million of previously accrued straight line rental revenue, which is accounted for it directly straight line rental income.

These reversals reflect additional tenants moved to cash basis accounting during Q3.

Tenants representing over 14% of our total leased maybe are now being accounted for on a cash basis.

With the most notable concentrations in restaurant entertainment apparel.

Well the collection rates for these tenants continue to lag the broader portfolio. We are encouraged by the trends we are seeing with rent collections improving from 36% in Q2 to 57% in Q3 and over 58% in October.

As Jim highlighted we believe that we have been appropriately conservative and our assessment of Collectability as highlighted on page 12 of our supplemental package for the second and third quarters on a combined basis were 59% reserved on all accrued uncollected base rent, which is comprised of a 37% reserve on executed deferral not subject to.

Modification treatment.

75% reserve on all accrued, but uncollected noninterest amount.

FFO for the third quarter was 36 cents per share in same property NOI growth was negative 9.3%.

Hi, reader FFO reflects seven cents per share of revenue deemed uncollectible.

Four cents per share straight line rental income reversal. In addition to two cents per share litigation and other non routine legal expenses.

Same property NOI growth reflects a 930 basis points attraction from revenue uncollectible, and a 190 basis points attraction from lease modification deferral agreement and abatement, which outweighed a 160 basis point positive contribution from all other base rent and a 70 basis point contribution from that recovery as we have.

$600 million of cash on hand.

And we have no debt maturities until 2022.

The reinstatement highlights our conviction in the resiliency of our portfolio platform and long term business plan as we continue to experience rent collection levels at the top end of the industry strengthen demand for new leasing further.

Furthermore, the level of this reinstatement reflects both our expectations of ongoing disruption as well as confidence in our ability to put retained capital to work creatively as we capitalize on this disruption to accelerate our portfolio repositioning efforts.

And with that ill turn the call over to the operator for QNX.

Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation so would indicate that your line is in the question queue. You may start to look we'd like to remove your question from the food.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we pull for questions.

The first question is from Katy Mcconnell Citibank. Please go ahead.

Great. Thank dunkin remaining data gx and Jim how much more are you assuming that your jacket at this point and then I've now been 10 basis point impact in Threeq sales can you provide some more color on the progress you've made to date really see negotiations or from any sale directly subsumption tenets.

Sales for timeframe as they tend to him.

Yeah, Let me, let Angela take the first part of the question in terms of the basis point impact, but I would just observe generally.

We've not been getting the locations rejected at the rates the tenants that bankruptcy, which is kind of interesting I think it reflects in part the lower rent basis that we have these are often boxes that we'd like to get back, but obviously, we don't have control of that through the bankruptcy process on the other side a lot of our.

Leasing volume over the last couple of quarters, and then Backfilling many of those bankrupt boxes like for example, the specialty grocery deal that I referenced in my remarks are really a great outcome for the center impacted getting rid of a weaker tenants and replacing it with the U.S, that's going to truly be wrong.

Angela do you want to take the first part yeah, Yeah, Katy as I mentioned in my remarks I'm in the third quarter. We recognized about 230 basis point that Bill day threats from tenants that are currently in bankruptcy I would say you know while its a fluid process and yeah. The amount of space. We ultimately take back from that kind of bankruptcy I could ultimately end up being.

Different I would assume at this point that we probably lose about half of that would be our exposure over time.

Brian.

Yeah, Katy I was just said or the progress the teams continue to make nine of our 16 anchor leases during the third quarter were backfilling former bankrupt space included within that were a 24 hour fitness box as well as JC Penney. So what we've demonstrated over the past few years, you've seen continue and we're really encouraged by the fact that we were.

Able to start Backfilling some of this space very quickly.

Okay, Great and then can you update us on where you think the portfolio stands today from a below market perspective on how this might have changed whether it be Dan.

You know what what we continue to demonstrate a strong spreads as I mentioned in my opening remarks, our spreads on new leases would have been 20%, but for one transaction and we expect our spreads to be in the mid to upper teens on a newly spaces as we look out over the next several quarters given what we already have in our.

Forward leasing pipeline so were very encouraged by what we're seeing there I'd also point you Katie to what we have rolling over the next three years from an anchor space perspective, it's below nine Bucks and you know if you look at where we've been signing leases net effective rents that we're realizing we're able to make significant money.

Given where those rents are so you know it puts us in a great competitive advantage as we're competing with tenants who are relocating tenants that are growing extending their portfolio as you would expect tenants or more than ever focused on four wall EBITDA profitability, so being able to make it.

Spread with a new tenant.

Improved the use of the assets something that we've demonstrated not only before the pandemic, but during the pandemic and we expected to be a big momentum driver for us as we emerge.

Okay, great. Thank you.

Next question comes from Alexander Goldfarb Hyper Sandler. Please go ahead Sir.

Oh, Hey, good morning morning down there.

Hey, how are you.

It's actually picking up from Kt is a question just.

Just so I make sure I understand it correctly that the 50% that you expect should not make it was that sort of overall when you look at your rent collection. So far let's use round numbers call. It 90% you expect the remaining 10% half of that well make it or that 50% was related to a different element.

It was related to just the bankruptcy number which Angela referenced a couple of hundred basis point and it's our best estimate in terms of as you move through the bankruptcy process. Obviously not every tenant does that will survive or what has been surprising to us is.

That many of these tenants that have opted to keep our locations open.

As they go through Charles So it may it may delay our ability, Alex frankly to get those boxes that [noise] Oh.

Okay, but if you think about the remaining the remaining uncollected rents or the non resolved and we called the remaining 10% do you have a pretty good handle on how that's all going to shake out.

Or are there you know for whatever reason you know there's less clarity on the <unk> I would think at this because I would think at this point in the cycle, where we are on the pandemic recession et cetera that the tenants where the issues are pretty clear that they have issues and you know, they're not going to make up the ones who seem to be trying to find that putting aren't yet calling on rent five you're putting your comfortable.

So just trying to get the assessment on that remaining 10%.

Yeah, we actually think it's a little bit smaller than that you know as I mentioned weve collected and dealt with three deferral agreements about 93% and you know within that 7%. We then been pretty intentional Alex about being patient in getting these tenants reopened many of them are small businesses and what weve.

I learned and other natural disasters is that you know.

Forcing them to be current on their rent answer just reopening the business puts additional stress we get them open get them operating.

And we find that we have much better survival rates out of that tenancy at the centers recover I do think what is important though is you know what as we've gone through that we've been able to continue to bracket, what's really at risk and you know what we think.

Well continue to be strong through.

Through you know ongoing pandemic and I think our portfolio has revealed it strikes in that regard.

Okay and then the second question is just on the overall kind of demand cycle from you and your peers leasing has been just a hallmark everyone's talking about record leasing much better the prior periods that stands in contrast to some of the news headlines you read about the economy as far as you know.

Just the challenges that certain geography seem to have the overall is it your view that just the retailers are.

I just did a much better spot and that things are not as bad as some of these regional headlines are or is that the retailers are shifting their investment dollars from other areas to focus more on on open air and that's been something that's occurred that you've seen throughout this year.

We definitely think were a beneficiary of a shift in focus towards open air in being within the last mile and the consumer.

And the retailers that we're growing with our retailers that have managed to thrive in this environment and I'm real proud of the market share brining team.

Been able to garner garner some of those new opens certainly you know I think retailers did you talk to 'em will say that there are more focused on suburban markets, where they're single family housing and they see a lot of positive trends.

Certain of the urban core markets that then.

Impacted by a declining rents and even even with the declining rents rents still at a level, where these retailers don't think they can be profitable right. I don't know if you have any other yeah. Kim you mostly covered it I think you also highlighted in your opening remarks, Alex as we as we talked about on.

Prior calls and now you can see in our pipeline the categories, we're in or execute a deal sorry, and in our pipeline the exit categories and continued to do well, whether that's in home specialty grocery fast casual restaurants and thinking the names that we signed this quarter with flooring to core home goods Burlington. So many of these transactions the other encouraging thing.

It was some of them started pre coven and were on hold and were actually had a comfort level to move those deals for and then you had a good mix of deals that started and finished during the current period. So we were really pleased and encouraged with the activity and it is in categories to Jim's point that have continued to thrive in this environment.

Thanks, Thanks, Jim Thanks, Brent.

Yeah.

We have a question from Todd Thomas Keybanc capital markets. Please go ahead Sir.

Hi, Good morning, just following up on the leasing discussion.

You know I realize its bifurcated then there will be some tenant failures and move outs, but do you expect to see a leasing volumes begin to accelerate in the quarters ahead as negotiations with tenants materialize and do you anticipate that that that the sign not commenced pipeline.

We'll begin to grow from the current $39 million level.

Yeah. You know we are really encouraged by what we see as I mentioned in my comments and not forward pipeline and we do expect the signed but not commenced.

At a minimum hold steady part of it is going to be driven by how much we deliver in a particular quarter. This quarter, we delivered over $10 million of a new 80 are but our pipeline held steady which is particularly encouraging given where it was the prior quarter and you know with our forward pipeline.

At over 2.1 million feet there.

$86 million baby are gives us pretty good visibility on that activity Brian.

Hi, Jim that you pretty much covered it again I would just I would just continue to to add Todd that within those categories. We continue to see robust demand and still for 2021 store openings and our team, it's really a credit to the relationships and dialogue that they've had where they pivoted very quickly to new leases.

Discussions and really capitalizing on that demand. So we feel encouraged and to Jim's point, yes, we expect that the activity within those categories to continue to grow.

Okay, and then Angela So you know.

Turning to the balance sheet, I guess, you know with the $300 million.

Notes offering and you know you're sitting with a $600 million of cash in a fully on drawn revolver. How should we think about the deployment of that capital later this year in the 21.

Yeah, I mean, I think I think a few things Todd you know, we obviously have the ability to repay.

Repay some debt early and we'll be evaluating all of our options I forget now, including the term loan.

So we'll be watching that closely and then obviously as we get into 2021 and you know we have delayed as we talked about on prior calls redevelopment and ended the value enhancing portfolio and based on the conviction. We're feeling about the business overall today rent collection levels, improving picture were seeing and leasing I would expect that you know some of that.

Capital does go that to continue to fund the redevelopment pipeline I see like into 2021.

Do you expect to sit with you know an elevated cash balance at year end or would you expect that to be.

You know, we don't whittled down significantly I think it will most likely be whittled down, but I think it's still going to be outsized relative to historical norms.

Okay all right. Thank you.

We have a question from Caitlin Burrows Goldman Sachs.

Hi, good morning.

Hi, This is what I've been talking about before but the portion of your rents that are in the bucket that's still to be decided.

Uncollected under negotiation it seems like that portion has declined and that would be like 8% for each of Q3 Q and October right.

So I was wondering what sort of tenants are included in this category were you, saying that these are small shops, okay, and what's the outlook for getting that kind of 8% resolved.

Yeah. It largely is a mom and pops. It does include some no surprise entertainment concepts that includes a full.

Full service restaurants, and small format fitness.

You know in our approach with those categories has been to be a bit more patient just drawing on the lessons that we glean from other disruptions on getting those tenants open and operating and get into a position where.

You know things like deferral payment plans et cetera can be more appropriately negotiated.

Okay, and I guess, if we looked at like October and cash collections are already about 90% could you give us an idea of what is normal rent collection and how soon you expect you could get there.

You know I think that.

We're going to continue to grind higher I think we're going to continue to steadily improve as we've shown we're now.

Addressing about 92 as you said are 93% of our revenue.

And my guess is over the next few months will get a lot more visibility in terms of deferral agreements and payment plans with some of the balance of that 7%.

But it's going to take some time as I think you know we emerge from this crisis that will accelerate quickly.

Okay. Thank you.

The next question is from Greg Mcinnes Scotiabank.

Hey, good morning, everyone.

Just regarding the David regarding the dividend how should we think about the payout amount relative to taxable income this year and maybe said differently. In addition to what's already been paid this year well the reinstated and that amount being not satisfied distribution partner.

We had the benefit given our historical ownership of being able to fully span two dividends and 20. So yeah. This dividend will be paid in 21, it will be applied to our taxable income for 21.

Will be paid in the first week of January so.

I'm real pleased that we were in that position, we don't have to pay a catch up dividend. We don't you know with.

This is really not setting a very conservative level looking forward as I mentioned in my remarks that allows us to apply more capital to our reinvestment pipeline, but importantly allows us to grow even with additional disruption.

Okay. Thanks, and then just shifting back to leasing per second how much leasing volume. This quarter was kind of build up from the deals that were on hold versus the continued expectations for leasing going forward and I know you mentioned kind of mid teen spreads on new leases, but is it fair to assume.

In a similar mid single digit spread overall going forward.

I think it will improve a bit you know we do have a higher volume of renewals as you saw and I think that probably represents the biggest quote unquote backlog in terms of deal that.

We said were kind of.

On hold but I'm very encouraged by the marginal level of new leasing activity that we're saying right.

Yes, it was a good mix as I as I mentioned earlier, and particularly some of those anchor deals for the likes of Burlington and home goods in a kmart boxes. We just is on our supplemental on a reinvestment planned out outside of Naples, and so we also had a number of those specialty grocer deals that literally started during coven and we were able to get.

Those finished very quickly so it was a good mix on the anchor front and then I would just point out as Jim mentioned on the volume of renewals. It was encouraging to us to see that backlog starts to come forward and those tenants be willing to execute renewals once they had clarity on traffic coming back to their centers once they had some clarity.

On how their business was starting to perform we actually saw many of those tenants come back to the table. So that was really encouraging to see overall in kind of trends and kind of matches the trends that we've been seeing with both collections and openings.

Thank you.

We have a question from Vince to both.

Greenstreet Advisors. Please go ahead Sir.

Hi, good morning, good morning.

I saw you were marketing a former Walmart boxes industrial at your center in Bristol, Pennsylvania is its more one off opportunity or could you see a large number of these you know potentially happening over the next few years and.

Able to share any kind of potential cutbacks unit economics is this kind of activity.

Hi, Thank you for the question that that that particular, Walmart box, it's interesting in new Bedford and that it tick up in apart from the balance at the center and we have a few boxes like that that represents probably better at higher yields as industrial opportunities, where we're seeing in.

I'll show rents in the mid teens to high Twentys.

And I think in that instance, you know we're kinda capitalizing on that demand from industrial users to be within the last mile of the consumer, but you know well that sort of convergence of logistics and retail interesting.

Really only works as a pure logistics use when it's separate and apart from the center.

And as I mentioned, we have a few opportunities like that which I'm, particularly encouraged by its great value harvesting opportunities, where we could probably bring it back its retail, but it makes more sense is industrial.

Thank you that's helpful. Just like you know maybe it's hard to generalize it looked like that like with more of a detached Walmart is it fair to say that even if it doesn't end cap like putting industrial at the top of the power Center would just be blocked by the Oreo gains of every other retailer I would assume.

Oftentimes you're right. It either you have implications with the R.A. or you know from my perspective that it's an issue of customer safety. You know you don't you don't want to put a heavy truck use.

Right up against the retail so even if we did have the ability to do it we think about it real hard. So it's really those situations, where you have a a box that's separate and apart from the balance at the center that it makes the most sense.

Great. Thank you.

You bet.

The next question is from Craig Schmidt Bank of America. Please go ahead Sir.

Okay. Thank you.

We've heard a lot of talk regarding how are they 20.

And how will that.

The sales are going to be more spread out more events occurring prior to what was black Friday.

Are you seeing any anecdotal evidence that there's an increase in traffic or sales after portfolio in early November.

You know, we have seen steadily improving traffic weekend and week out, which we find encouraging.

And part of that very may well be driven by the retailers decision kind of spread out the holiday season started earlier compete with Amazon for there there are big day, Brian I don't know if you have any more color.

Yeah I would just.

Say Craig the biggest winners that are for the holiday season are really going to be those retailers with omnichannel capabilities and many of the strongest anchors that we have in our portfolio you think about what targets done wouldn't walmarts done and many of our tenants that really through back to school started testing out more of the curbside.

Pickup initiatives that weren't there before you think of Ulta as a best buy cold Petsmarts rolling them out across the portfolio as well and generally the general public has gotten more use to curbside pickup. So I think that convergence and those retailers that have been focused on that omni channel strategy, we're going to be in a very good position to succeed.

And we're fortunate to have a number of those throughout the portfolio.

Right and then just how important will holiday 20 be for you.

Regarding your portfolio and store closing.

In 2021.

You know the holiday season is always important but we have a portfolio that is less dependent on holiday traffic right now our portfolio is community centers with essential usage growth for et cetera. So holiday certainly important for every retailer, but as a general.

Rule, we're a bit more insulated from you know the impact of a great holiday or weaker holiday given the nature of our time.

Okay. Thank you.

Yeah.

We have a question from Mike Muller JP Morgan.

Yeah, Hi, I'm, just wondering if you look to 2021 and beyond and just thinking about the high level capital recycling framework that you've had in terms of 440 600 million to dispositions and however, many hundreds of millions of redevelopment spend.

Does anything like that change over the next few years.

You know Mike that the only thing that I would highlight is that we do expect an acceleration of some of the redev opportunities that have been pre leased and 21. So some of our San will be more elevated than what it's been on a long term basis again. This is all pre lease with good credit.

Quality behind it and as I mentioned in my opening remarks remarks, very compelling incremental return. So we think it's a good place to put capital to work and continue to improve our centers and you know in terms of the volume capital recycling and acquisitions, it's going to.

The opportunity driven you know what I like about where we are in this environment is you know we're not in that seller, we have the ability to be patient and we are starting to see some interesting acquisition opportunities, where we can put our platform to work and what we believe our competitive advantages.

But we'll be patient and you know about.

Got it okay.

That was it thank you.

You bet.

The next question is from Samir Khanal Evercore. Please go ahead Sir.

Hey, Hey, Jim Good morning, when I look at your net effective rents I mean, there are quite a bit there were up quite a bit and you know in the quarter and even if you look kind of pre coated.

And but it looks like you had a bit of higher level of anchor signings in the quarter, that's about a 10000 square feet and I.

I would have thought you know those anchors usually pays but lower rent.

So the higher capex in the small shop is that just a function of more specially grocers signings that you talked about or.

Are there other categories as well, they're very active sort of that over that you know the sometimes griffey here that we should know about.

You know, it's a couple of things it's definitely the mix we had some great specialty grocery deals that we think are going to be transformative to the centers that they impacted we've also just been disciplined with capital and you know we're real proud of where that net effective rents stands and as I mentioned in my remarks, you pick.

Gone.

It's close to an all time high for us even with the higher mix of anchor deals in the quarter.

Okay. Thanks for that.

You bet.

[laughter].

We have a question.

Right.

We have a question from Haendel St Joost suitable.

Good morning, and thanks.

Hey, Jim how are you.

Hey, first question is on the dividend all about them for a second but maybe from a different angle you generated 36, <unk> GAAP EPS also in the third quarter back to clinical trials.

Do you sense about 50 people run rate.

You talk about maybe you know.

As we think about the dividend right now I think about you know historically before.

Fortunately the deficit was about 75%, which I use about 50 to $1.12 dollars working at full run rate, which is about a 75% coverage on the new dividend. So I guess I'm asking you know my math in my logic way off here and maybe you can help with what I'm seeing how and why you would buy back.

And you like people.

You know it is we believe a more conservative payout as we look forward into 21.

We will have taxable income.

And and we tried to strike the right balance between making sure we were.

Distributing at the rate of our taxable income, but also having a conservative payout.

Payout ratio looking forward, even with additional disruption because what was very important to us is to make sure that we can be in a position to grow that dividend and as we continue to deliver the signed but not commenced right. We continue to move through this panda. So.

That that was really what guiding the decision it's not intended to be implicit guidance going forward, but you should see it as what we believe a conservative level.

Yeah, I would just add or add on to that that you know you have to remember I think in the Annualization math for the current quarter that you are annualizing $11 million. The straight line rental income or personal in addition to that to the significant amount of revenue deemed uncollectible and obviously you know we don't know exactly where those things are going in the future, but I'm, particularly on the street.

Right I think it's a it's a little difficult to annualize add into that the longer term run rate.

Yeah, Yeah, Okay and.

And then maybe how does the I guess lack of liquidity in the transaction market play a role in your thinking on the dividend Lucky definitely give you. This in the past to pay dividend you using multiplus read that funding them, even debt reduction in the past but.

Well clearly, it's a source of capital, which so far to date doesn't really appear to be there, but perhaps some thoughts on on that and a little of what you're seeing and hearing in the transaction market today.

Seem to be pretty far through does not exist. Even so we'll go through that.

Yeah, no. It's a great question I think I'd start with the fact that we're actually cash flow positive will be very cash flow positive even with the reinstated dividend of course, we as they read ultimately have to distribute taxable income so that factors into our analysis.

In terms of what we're seeing in the transaction market Mark maybe you can comment on it.

Yeah assets that were looking to solve we're finding good fits for you know the market.

Market seems to be liquid for the community.

Grocery anchored and other types of assets that we have the general or in a smaller overall transaction side, what we're particularly excited about looking forward as we think about capital recycling. Our you know some of the assets that have seen the disruption, but their landlords are positioned to address it.

And that's where we think we can get to some opportunistic returns bar.

Yeah, Jim I think what I will what I, what I would add is one of the fundamental changes we're seeing in the market today is that significant increase in demand from that lease like assets that are focused on a central retail I think the home depot Walmart that we sold this past quarter. The Berkshire is or is it pretty good example, I mean, if you look at the cap rate there was in and around the sex didn't have a management fee something comparable cap rate.

Two shopping centers sales high fives, that's really reflective of the very significant demand from not least investors for central retail and that's really across any geographic location.

For example, those those two assets the cap rate was easily 250 to 300 basis points tighter than where that center would have traded on a full center basis.

Good amount of capital raised institutional interest in that lease assets, there's really been a true increase in demand for net lease given that valuation for those kind of assets compiled scallop or company. It really does provide us with an a very attractive cost effective capital recycling option, particularly on the non core assets and I think that really allow us to fund our business plan Accretively going forward.

I appreciate the color guys. Thank you.

You bet.

There's a question from Linda Tsai. Please please go ahead.

Hi, I'm just following up on your comments Mark about the demand for net lease assets. I mean are you guys comfortable with selling the anchors in those centers here in terms of maybe giving up some right huh.

What's interesting is that you know where we're harvesting some of the net lease value, we're actually doing it in the non core portion of the portfolio and we're doing it as we've done in the past in pieces. So we're we're selling somebody out parcels or some of the ground leases separately from the balance at the center.

What we found is that its very accretive from a valuation standpoint, we don't see diminishing in terms of cap rate on the balance of the center and we actually are seeing good overall demand given that we've reduced the size of the overall.

Yeah. The other thing I would add it isn't just isn't just anchors its certainly outparcels and things like that and the other thing to remember is that we control the center fully today generally so we have the ability to write an area that's in our favor.

So I think that's a piece of the puzzle, but looking at where we're selling them at leases.

Thanks for that color and then as the environment continues to show stabilization in your liquidity profile proves how are you thinking about targeted leverage over the next year.

Yeah, I would say I don't think that our view on long term leverage levels for the portfolio. It changed at all I think the resiliency worsening on you know certainly confirms that they said that being in that kind of low six times range is where we are we ultimately should get too obviously that trajectory ticketing that will depend on how things.

Play out over the coming quarters, but I don't think our thought process around the right absolute level has changed as a result.

A question for you.

Floris van Dijkum.

Compass Bank. Please go ahead.

Hey, Floris.

Hey, Jim how are you good.

A quick question.

Just wanted to get to get a sense of where youre and alike coots trough and obviously you know next year, you've got with your signings.

No the operating pipeline Youve got some some growth baked into the into your results but.

Hey, I'm, just trying to get a sense of what your third quarter.

You know builds Oh revenues can you know work compared to first quarter billed revenue I noticed that you know, it's just about one $1 billion or just under a half a percent lower than it was in the <unk> in the second quarter, but curious to see what was relative to the first quarter.

If you can you shed any light on that or Angela.

Yeah, Let me, let me start you're actually highlighting something that's been interesting to us and that is that we see today very low levels of tenant failure.

Of course, as we drop it down in a wireline reducing that analyzed by revenues that we deem uncollectible and I think we've been very conservative on that looking forward and the timing is going to be interesting because I do expect tenant failures to accelerate as we move through the next.

Few quarters.

But behind that as you pointed out in your remarks, where we stand pretty well.

Cushion in terms of the signed but not commenced rather than me.

[noise] commencing over the next couple of quarters. So.

Yeah, it's a tough call to make from a timing perspective.

You might see on a lie flat up, but but Andrew I don't know if you want to make more more comments there, yes, I'm not the question I think as it relates to the current or the third quarter don't they rent relative to pre pandemic level. It's about a 70 basis point delta at the first quarter.

I don't think its ramp with ran $112.8 million. So it's really only down 70 basis points, which speaks to the comments. We made earlier that while we do obviously anticipate there's going to be some acceleration in tenant disruption, we really haven't seen a significant amount of that date.

Thanks, Kelly, maybe if can you guys do get some Oh, you talked a little bit about traffic jam and it's not necessarily you know holiday sales that drive the success of your center.

How many or what.

What do you what do you deem to be.

Successful centers or what kind of traffic patterns do you look for and how many traffic.

Counters do you have at your centers.

So we don't utilize traffic counters, we actually utilize cellphone data on and off the properties, which allows us to pretty accurately track.

Traffic overall as well as importantly relative trends in that traffic and we've been encouraged that as the tenants reopened we're seeing corresponding increases in traffic to the center not quite to where we were pre pandemic, but were in the low to mid ninetys from a traffic perspective, what's also intra.

Is saying is we're hearing anecdotally from our tenants that you know there, they're getting better capture from the customers that they're seeing as well as a bigger basket sizes.

Both of which we think are good signs of health across the portfolio.

You know we have seen some regional differences, which I think had been tracking you know regional closure orders quite frankly and as soon as those roll off we see traffic recover.

It performed pretty well so we're real encouraged by the flow of traffic that we're seeing into our centers.

Thanks.

You bet.

We have a follow on question Vince to bowling.

Green Street Advisors. Please go ahead Sir.

Hi, one more just quick one for me could you elaborate on the com intent in categories that are signing new leases in the small shop space.

Sure Brian.

Yeah. Since we've we've been encouraged it's been a good mix of.

National tenants in the in the medical fast casual restaurants have been incredibly active we do have some larger general merchandise cabinet categories.

Categories as.

As well in that space. So it's been primarily national tenants right now on the small shop space within those categories locals are but it being a bit more cautious as you can imagine in this environment.

But again, we've been encouraged by what we're seeing today and as and as traffic has picked up we've been seeing over the past month or so maybe more of those local tenants come back to the table, but really it's in that medical fast casual restaurant category, where we're seeing a lot of activity.

That's helpful and then on the local side just curious how does this compare to the GFC like did is done me I mean this is obviously a lot lot different for a lot of reasons, but was local demand. This week then or this is really you know the lowest it's been.

I I think what we're encouraged by that you know it depends on the category right now and I think that's what's different about this this isn't broad based but there are certain categories of tenants, which are obviously at higher risk you know the small format sitting at some of the personal services.

Full service restaurants et cetera, those are the categories that have been most directly impacted by the.

You know as the restrictions ease and the tenants are allowed to reopen a weekend.

We've been very encouraged by the reports that were getting albeit you know the in those particular categories that I highlighted that's where I think you know you're going to see the largest levels of tenant failures as we go forward, but far different than the GFC, which was much broader based and.

You know sort of a different economic outcome.

Thank you.

You bet.

There's a question from Tammi Fique Wells Fargo Securities. Please go ahead.

Hey, Tammy.

He's hoping your microphone them.

Oh, sorry about that good morning, Thanks for taking my questions and later gap recent news just focused on open air centers have you seen an increase in demand by retailers moving from enclosed centers open Air and then I guess in light of your commentary around being more essential use community centers.

Is that a tenant base were more interested in increasing your exposure.

Well I think I think we have capacity and still and still be smart in terms of a relative exposure.

It's very similar to when.

When we joined we saw we were under represented and restaurants, and we've been able to bring some great.

Fast casual type uses into our centers that that sort of gap announcement was not a surprise to us it's something that we've been seeing and frankly talking about for a while that I think retailers across all retail categories are reexamining, where they want to have.

Their store they want it at a place where they can have reasonable occupancy costs. They wanted to have it at a place where they can as Brian alluded to before have fine line pick up in store and have multiple ways to serve the customer and they want to be near the customer they want to be convenient to the customer and we think that's true not only with them.

Small native times, but some of the digitally native concepts as well as the broadening funnel types of uses that are considering open air shopping centers is a great place to do business, Brian mentioned some of the matters. So we're actually encouraged family across the board. We think we have room to grow with some of the.

The apparel used to and not be over exposed in terms of money our side.

Okay. Thanks, and then maybe.

Going back to the improving demand picture I guess, given the weak secured lending environment.

Lower cash flows I'm kind of broadly speaking do you think that your ability and that of your peers to fund and build out.

Its driving incremental demand here centers I guess, how important your sponsorship to the tenants that are being selective indication today.

[noise] incredibly important it's a great question Brian.

Yeah, I think that's certainly important what's also important is the ability to put together the lineup of co tenants that these tenants want to be and just to what Jim was saying today, whether it's the mall native brands or some of the digitally native brands they want to be where they see their customers, where there's foot traffic and what our team has demonstrated and.

More continuing to demonstrate is that we can still put those co tenants used together, we still have the reinvestment projects to be able to do that so that's where I think most of these tenants are our focus are you going to be able to execute on adding the lineups and co tenants that they want and and we've demonstrated to date and are confident in doing that going forward.

Yeah.

And you know Tammy, we do believe that the liquidity and access to capital as these retailers look to partner to execute on their growth plan is incredibly important.

Okay. Thanks, and then just maybe one last question I'm, sorry, if I missed it but what is the normal collection rate for your portfolio.

[noise], probably 99.5% something like that there's always some obviously in a normal environment, we're recognizing income levels and permanent.

All right you know typically than less than 1% certainly.

Okay, great. Thank you.

We have a final question from Greg Mcginniss Scotia Bank. Please go ahead Sir.

Hi, again, just a quick follow up on leasing.

Comment on the differences you see demand that you're seeing based on geography, and whether more restrictive operating environment and in fact, some leasing demand.

Brian what's actually been interesting to us Greg is some of the markets, where we've had some of the most onerous restrictions. If you think about the northeast or north teams, having a record year and I think it demonstrates a the reinvestments that that team has made that even during this we've been able to really capitalize on those.

So it hasn't really trended to where there is an increasing closures. We certainly did see a bit of a lag during the second spikes in places like Texas, and California, but what was encouraging to US is that we continue to see the activity fairly broad based and then particularly in the north as as we move deals.

Forward, even with those elongated closures.

Thank you very much.

Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session I'd like to turn the call back over to Stacy Slater for closing remarks.

Thanks, everyone for joining us today.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

[noise] [noise] [noise] [noise].